The Chicago Plan.....WITH A VIEW

I'm not going to bother with a link to the IMF paper, that has already been provided by Stow Judge on a separate post, nor am I going to waste your time with disingenuous comments like "it's real interesting" without explaining why I find it interesting as "I haven't got my head around it yet".

Since the IMF paper is lengthy and highly technical however, and would probably even challenge many practising economists to review and evaluate, I will provide a link to a very recent Armbrose Evans-Prichard article titled "IMF's epic plan to conjure away debt and dethrone bankers" which appeared in the Telegraph. Although at times the AEP piece appears disjointed and disorganized, it's still a much easier read than the actual IMF paper. I would venture a guess this is probably where Stow Judge run into it, as most people I've run into lately who have shown a renewed interest in discussing the 1936 original work of Simmons and Fisher, since I rather doubt that very few people beyond some practising economists (I'm not one of them) would scour the IMF website looking for the latest 50+ plus paper that uses a "calibrated model of the banking system in a DSGE model of the US Economy".

Here's the link: http://www.telegraph.co.uk/finance/comment/9623863/IMFs-epic-plan-to-conjure-away-debt-and-dethrone-bankers.html

My view is that this plan is like trying to close the barn door after the horse has left. It's yet another effort to divert attention to the real cause of boom/bust cycles and continue with a fraudulent system that benefits the few simply by changing the optics of who's in control. Here's why I hold such a view:

1. The idea advocated by the paper is not new. It has been tried many times before through history including during the time of the French Revolution (the Assignat system), Germany in the early 1920's (Notgeld notes) and more recently in the Soviet Union with the ruble. In all cases, it all ended badly with people starving, bloodshed in the streets and…….wait for it……hyperinflation.

2. The idea of reaching economic nirvana by taking away the responsibility of conjuring money out thin air from greedy bankers and handing it to corrupt politicians is utterly laughable. First and foremost, today the bankers make the decisions, not your appointed representatives. It's an incestuous relationship but the bankers are in complete control and anyone who doubts that just hasn't been paying attention to events since 2007.  So the concept of taking that power away, that we so willingly handed over to the money cartel many years ago, and that we've allowed to grow to such an extend that has now enslaved the majority of the public through accumulation of debt, as well as abduct our government leaving only with the illusion of democracy, is naive. Even if it where to happen, it can not happen in an orderly fashion as it would cause the complete collapse of the economy in a deflationary depression the likes of which we have never seen before. And lastly, anyone trusting corrupt politicians to "print just the right amount of money out of thin air" to spend themselves is about as naive as believing central banks have the public's best interest at heart.

3. The issue shouldn't be framed around "what's best for us, greedy bankers or corrupt politicians having their finger on the print button?", the issue would be debated around taking away the ability of ANYONE to debase money by creating more of it out of thin air. This "plan", backed by complex models and fancy equations, is nothing more by yet another attempt to fool the masses and create the illusion of "change" to a failing system without actually making any real changes. Changing from bankers to politicians is a cosmetic change at best as the two are so heavily entwined. Changing to sound money backed by real resources is real change. Theft through conjuring money out of thin air is is still theft regardless whether is done by the money cartel or the government.

4. Since the "transition method" from the existing system to the one proposed by this plan will destroy the banking system as we now know it, it is a form of debt repudiation, nothing more, nothing less. So in the transition phase this becomes a scheme that rewards the irresponsible and profligate at the expense of the prudent……..yet again !! Let the free market decide winners and losers, not bailouts and never ending government schemes. Let capitalism work. You can't have a free market without risk.

5. The plan advocates 100pc reserve banking which I fully support (with a caveat). Where it falls apart however is arguing that we can transition to such a system, removing the ability of banks to generate their own funding (which I also totally agree is an extraordinary privilege that politicians have handed the money cartel) and separating the monetary and credit functions, with the government now having control over the money supply, and not miss a beat in economic growth. How are we then going to create money to expand the money supply to keep up with a growing economy? Oh yes, silly me, it's called deficit spending, so the politicians again will keep their finger fully pressed on the "print" button because without deficit spending the government can't meet its obligations and (since government spending is included in the GDP calculation because of the keynesian "aggregate demand" madness), there can be no growth.

I can go on with some more subtle economic points but my post is already way too long and I doubt anyone without formal training in economics would understand anyways. For example, under this new set-up, when a government hands money to itself, is it treated as an asset or a liability on the balance sheet, or have we totally dispensed with such formalities and just insert it under the "manna from heaven" category?

Do you want REAL change? Then, for starters….

1. Reform the banks. Turn them into utilities. Banking is a commodity business, there's nothing inherently difficult or special about it. Separate commercial and investment banking activities. Prohibit speculation in commodities. Make them take delivery. Shut down schemes that create fictitious paper wealth (naked derivatives plays) out of thin air and backed by nothing other than the knowledge that the bankers will be bailed out if those bets turn sour. Stop TBTF.

2. Stop government deficit spending. You spend what you bring in. End the nanny state syndrome.

3. Re-balance the relationship with emerging economies, especially China. It's time to end the charade that globalization was good for the public, it was only good for maximizing profits by the multinationals.

4. Back the creation of sound money with real resources, perhaps a basket of commodities that will most certainly include GOLD as a key component. Make money sound.



Having said all that, I don't believe today's financial system can be reformed. I think it will be rebuild after it collapses which is not a matter of "if" but a matter of "when". It's not a matter of "political will" to make changes to stop the slide either, it's a mater that the "system" was designed to fail from the outset. Central bankers and politicians can delay the outcome (and make it worse in the process) but they are quite powerless to stop what is unfolding. After all, it's not central bankers who continue to conjure money out of thin air as their ONLY answer to our current predicament, nor politicians who go around spewing nonsense about "growth policies" as if the economy can always resume it's "infinite growth" path simply by putting down the right words on a piece of paper, it is EROEI for OIL that will decide this in the end. Understand this and you understand what this crisis is all about. Fail to understand this and you deserve what you have coming to you.